The Bush administration's proposed $700bn bail-out of cash-strapped Wall Street banks received a rancorous hearing in Congress yesterday as politicians demanded safeguards, extra details and more time to scrutinise the way the Treasury intends to spend the money.

Under questioning by the Senate banking committee, treasury secretary Henry Paulson clashed repeatedly with congressmen as he admitted that he had only a rough idea of how his department would price and purchase toxic mortgage-backed securities.

Paulson, appearing alongside the Federal Reserve's chairman, Ben Bernanke, resisted calls to crack down on excessive Wall Street pay packages but gave ground on providing aid to homeowners and allowing an independent board to scrutinise the planned fund's investments.

Describing this summer's financial crisis as "embarrassing for the United States of America", Paulson said "thousands" of banks would be eligible to sell assets to the government.

"This is all about the American taxpayer - that's all we care about," said Paulson. "This is not something I ever wanted to ask for but it's better than the alternative."

At one point, his comments were jeered by protesters who held up signs saying "no Paulson plunder" and "no blank check". But Paulson's words were echoed by Bernanke, who gave a blunt warning that the US faces a prolonged recession unless the government acts: "If the credit markets are not functioning, jobs will be lost, unemployment will rise, more homes will be foreclosed upon and GDP will contract."

Republicans and Democrats expressed grave reservations about the plan, complaining that they were being asked to legislate in a hurry for a huge amount of money to be spent on an "experiment".

"Why do we have one week to decide on $700bn that has to be appropriated or our country's financial system goes down the pipes?" Jon Tester, a Democratic senator, asked.

From the opposite end of the political spectrum, conservative Republican Jim Bunning, said: "This massive bail-out is not a solution. It is financial socialism and it's un-American."

Legislators pointed out that they initially received only a three-page summary of how the government's intervention will work. They questioned how the Treasury would determine the price it will pay for obscure mortgage-backed derivatives which have been all but abandoned by the financial markets.

Paulson said he anticipated some form of "reverse auction" whereby banks would compete to sell unwanted securities for the lowest price. But the process would require "experimentation" and he promised the Treasury would recruit experts to help.

"This is not a situation where we can come and say, 'This is what we want to do, this is how we're going to price it and this is how the reverse auctions are going to work,'" Paulson told the committee. "We've said upfront we're going to need some experimentation."

That left many senators dissatisfied. Bob Menendez, a Democrat from New Jersey, said: "You're flying by the seat of your pants. You want the capital to be there but you're not quite sure what you're going to do with it." A Republican, Mike Enzi, asked: "Shouldn't we have the process designed before we have to do a $700bn experiment?"

The pricing mechanism is widely considered to be critical. If the treasury pays too little for securities, the banks could still collapse. If it pays too much, the government will be unable to sell them on, landing taxpayers with huge liabilities.

After initially asking for virtually unchecked power, Paulson has agreed in principle to the creation of a board to oversee investments. He has also suggested he is open to some form of aid for struggling homeowners as part of the package.

But the administration continues to balk at introducing any legislative curbs on Wall Street salaries. Paulson, who earned up to $30m annually when heading Goldman Sachs, said compensation was an issue to be dealt with separately.

"I've heard your concerns on executive compensation and I share those frustrations," he said, adding that he was equally "upset" by certain examples of excess.

The emergency package has prompted vigorous reactions around the world. The Venezuelan president, Hugo Chávez, pointed out this week that the bail-out would cost four times the amount his nation produces in a year. He described the financial turmoil as a sign that his "21st century socialism" was the way forward.

Democrats have suggested that the government take equity stakes in return for aid to banks. Christopher Dodd, the Democratic chairman of the banking committee, expressed fears about the precedent set by the package: "I can only conclude that it's not only our economy that's at risk but our constitution as well."

What they said

"I believe if the credit markets are not functioning, that jobs will be lost, that our credit rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover in a normal, healthy way." Ben Bernanke

"You worry about taxpayers being on the hook? Guess what - they're already on the hook." Henry Paulson

"This massive bail-out is not a solution. It is financial socialism and it's un-American." Senator Jim Bunning, Republican